…Message Box ( Arial, Font size 18 Bold) Presentation Title ( Arial, Font size 28 ) Date, Venue, etc..( Arial, Font size 18 ) Impact of Shortage of Coal in Power Sector - Steps for Quick Relief Amulya Charan – Chief Mentor Tata Power

…Message Box ( Arial, Font size 18 Bold) India Power Sector Snapshot Total Installed Capacity – Over 200GW 75 GW more capacity is planned to be added in XIIth Plan. Coal has remained and is expected to remain the dominant fuel by far. With 74% of the 12th Plan additions being based on coal, coal share of the total generation portfolio is expected to be over 60% by the end of Power Sector facing a major challenge because of fuel shortage both in Coal and Gas. With Coal being the dominant fuel in India’s Power Generation mix, Coal shortage is a major threat to India’s development story. 2

…Message Box ( Arial, Font size 18 Bold) Coal shortage and its Impact on power sector Domestic coal productions has been stagnant for last 3 years at around 530 MT, with Coal India failing to ramp up the production to meet the increasing demand. With 75% capacity addition in XIIth plan being coal based, we are headed towards a shortfall of more than 250 MT by GW of generating capacity in was underutilized on account of coal shortages. Coal shortage forces the end consumer to switch to backup power which is primarily on diesel. Per unit costs upward of 12 INR/KWh which makes Indian industry very uncompetitive in global markets. Diesel burning for power generation is extra Diesel subsidy burden on government and forex outflow from India. Source: Based on view from Planning Commission 3

…Message Box ( Arial, Font size 18 Bold) Coal shortage and its Impact on power sector With total volume of seaborne traded thermal coal in 2011 only 750 MT, if Indian imports ramp up to 250 MT, this will result in a very tight coal market resulting in price spike and making power generation on imported coal unviable. Coal shortage will result in many developers defaulting on their debt, thus further stressing banks and making financing for new power projects very difficult

…Message Box ( Arial, Font size 18 Bold) Steps for quick relief Increased accountability on Coal India Performance Production has been stagnant for last three years New Technology and skilled man-power absorption at a very low rate. Logistics Mines not being developed as there is no evacuation possible for the mined coal. It was estimated that MT of coal was lying ideal at mine head last year and could not be dispatched to the power plants because of the limited connectivity between mine head and railway loading point. Open market for surplus coal production No incentive to produce more coal from the allocated captive mine, as there is no open market to sell that coal. 5

…Message Box ( Arial, Font size 18 Bold) Steps for quick relief Improving financial condition of SEB Power generated in the range of INR/KWH from imported coal can be dispatched, but poor financial condition of distribution companies restricts that. Bringing down T&D losses is the most sustainable way to improve finances Most SEB have more than 30% T&D losses, and achieving 15% is possible with right policies and technology. By reducing T&D losses to 15%, SEB’s will save more than 50 Paise/KWH on power unit purchased at 3.5 INR/KWH Open access for Power Customers Power from imported coal has a ready market from the commercial and industrial sector with open access. 6

…Message Box ( Arial, Font size 18 Bold) Best way to Import Coal and incentivize power generation on imported coal for immediate relief In the short term to fill the gap between coal demand and domestic coal production coal has to be imported. Is price pooling the best way to import coal in India, when it has been witnessed in the past that such measure leads to inefficiencies in the procurement ? Another model to compensate generation on imported coal could be developing an imported coal power generation certificate market – Each generator in the country will be required to produce a certain percentage of total generation on imported coal – This % number can be computed annually based upon the projection on domestic coal production and coal demand. Generators producing power using imported coal be issued special “Certificates” by Regulator for each unit of such power generation. If the generator has domestic coal allocation for 100%, he will be required to go to the market and buy these special “Certificates” to offset the minimum % generation on imported coal. A generator which is generating more power from imported coal as mandated will be allowed to sell these certificates in the market. 7

…Message Box ( Arial, Font size 18 Bold) Long term measures to increase domestic coal production Encourage Underground Mining In 2005 around 80 per cent of coal production in India came from open-cast mining, this compares to 20 per cent in Underground production declined from 51to 44 million tonnes during the period Open up domestic coal mining for private participants This will sharply increase domestic coal production and also bring the best technology and industry practices in India.

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